KMG America Reports Third Quarter 2006 Operating Income of $0.10 Per Share, Net Income of $0.09 Per Share.KMG KMG Kerr-McGee KMG Koi Mil Gaya (Hindi movie) KMG Kunming, China - Kunming (Airport Code) KMG Kent Messenger Group (UK) America Will Host an Investor Web Cast Today, Monday, November 6th at 10:00 A.M. EST EST electroshock therapy. EST abbr. electroshock therapy MINNEAPOLIS -- KMG America Corporation (the "Company" or "KMG America") (NYSE NYSE See: New York Stock Exchange : KMA KMA Kiss My Ass KMA Korea Meteorological Administration KMA Koninklijke Militaire Academie (Royal Military Academy; Netherlands) KMA Knoxville Museum of Art KMA Kentucky Medical Association KMA Korean Medical Association ) today reported net income of $2.0 million, or $0.09 per diluted share for the third quarter of 2006, compared to net income for the third quarter of 2005 of $1.3 million, or $0.06 per diluted share. The company reported operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. for the third quarter of $2.1 million, or $0.10 per diluted share, compared to operating income for the second quarter of 2006 of $1.1 million, or $0.05 per diluted share, and third quarter of 2005 operating income of $1.2 million, or $0.06 per diluted share. KMG America's Chief Executive Officer, Kenneth Kuk, commented, "Our third quarter operating income results of $0.10 per share are consistent with our internal forecast and better than the analysts' consensus estimate of $0.08 per share. This quarter's results marks the seventh consecutive profitable quarter since the IPO (Initial Public Offering) The first time a company offers shares of stock to the public. While not a computer term per se, many founders, employees and insiders of computer companies have found this acronym more exciting than any tech term they ever heard. with operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before up over 70% compared to the third quarter of 2005 and double the results reported in the second quarter 2006. Most key measurements continue a very positive trend including increasing sales and reduced operating losses operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. on our new large case business." THIRD QUARTER FINANCIAL RESULTS Third quarter 2006 operating income (see discussion of non-GAAP financial measures below) improved to $2.1 million compared to second quarter 2006 operating income of $1.1 million, largely due to favorable claims experience in the Kanawha legacy business and revenue growth from the new large case sales activity. Third quarter 2006 earnings results reflect several unusual items that are largely offsetting. The favorable items include a pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern reimbursement Reimbursement Payment made to someone for out-of-pocket expenses has incurred. of $0.3 million from our D&O carriers for certain prior period litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. expenses related to the ReliaStar lawsuit. The current quarter also includes a pretax offset of $0.2 million from reimbursement of current quarter litigation expenses related to the ReliaStar lawsuit, and we would expect continuing legal expense reimbursements as the lawsuit progresses towards a conclusion. Also included in the current quarter results is a one-time pretax financial benefit of $0.6 million resulting from an indemnification from the previous shareholders of Kanawha. These favorable items were mostly offset by the recognition of $0.9 million of stop loss claims relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc specific cases written in 2005 as we transition from formula reserving to actual claims experience as this block grows and matures. Volatility, both favorable and unfavorable, is not uncommon in small, growing books of business. Cases giving rise to these excess claims have since been re-priced or did not renew. The discussion of operating earnings that follows has been segregated into earnings attributed to the Kanawha legacy business and the earnings of the new large case activity. The Company believes that segregating the earnings results of the new large case activity provides a more meaningful comparison of the underlying strength in the earnings produced by Kanawha's legacy business. This earnings derivation derivation, in grammar: see inflection. is described later in "Notes on Financial Presentation." The discussion below focuses on third quarter 2006 results compared to the second quarter 2006 results. KANAWHA LEGACY ACTIVITY RESULTS Operating income attributed to the Kanawha legacy business for the third quarter of 2006 was $4.3 million, or $0.19 per diluted share, up 21% compared to $3.6 million of operating income reported in the second quarter of 2006 due largely to favorable claims experience across all of its business segments and the $0.6 million pretax benefit related to the indemnification from the previous shareholders of Kanawha mentioned above. The benefit ratio reported for the Kanawha legacy business for the third quarter of 2006 improved to 75.3% compared to 82.2% reported in the second quarter of 2006. Earned premiums Earned premium is the portion of an insurance written premium which is considered "earned" by the insurer, based on the part of the policy period that the insurance has been in effect, and during which the insurer has been exposed to loss. reported in the Kanawha legacy business for the third quarter of 2006 declined to $24.4 million, compared to $25.5 million reported in the second quarter of 2006 due to lapses of certain legacy worksite cases, the impact of an experience rating refund adjustment on one large treaty in the Acquired Business segment, and to the seasonality effect of policy anniversaries of long term care policies reported in the Senior segment. Amortization of DAC/VOBA ("deferred acquisition costs"/"value of business acquired") increased to $1.4 million in the third quarter of 2006 compared to $1.0 million reported in the second quarter of 2006 due largely to the impact of increased lapses in the worksite segment and the delayed impact of both recently approved and pending rate increases in the long term care block of business that tends to accelerate amortization. The amortization of VOBA VOBA Value of Business Acquired VOBA Virtual Office Business Administration VOBA Votoms Online Battling Arena VOBA Virtual Office Business Assistant (NetOffice) on the long term care business is expected to moderate as the pending rate increases are approved. NEW LARGE CASE ACTIVITY RESULTS Operating losses attributed to the new large case activity improved to $2.2 million, or $0.09 per diluted share, compared to a loss of $2.5 million, or $0.11 per diluted share reported in the second quarter of 2006. Contributing factors to the improvement include positive growth in premium revenue driven by increased sales and the favorable impact of the reimbursement of ReliaStar litigation expenses from our D&O carrier. These favorable items were partially offset by increased claims on 2005 stop loss cases. Premium revenue (net of reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. ) increased to $9.8 million in the third quarter of 2006 compared to $5.2 million reported in the second quarter of 2006. Third quarter 2006 sales results (as measured by new annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. issued premiums) attributed to the new large case activity improved to $12.8 million, compared to $8.2 million for the second quarter of 2006. On a year-to-date basis, sales improved to $36.8 million compared to full year 2005 sales of $12.2 million. The third quarter and year-to-date 2006 sales results include $5.3 million of annualized premium related to the acquisition of a small block of life insurance policies that had a small but favorable effect on third quarter earnings. Excluding the small block acquisition, the benefit ratio reported for the new large case activity in the third quarter increased to 71.5% (79.4% as reported) compared to 66.1% reported in the second quarter of 2006, driven primarily by the $0.9 million of excess stop loss claims related to certain cases written in 2005 recognized in the current quarter. NEW STATISTICAL SUPPLEMENT AVAILABLE ON WEBSITE Substantial content changes have been made to the Company's earnings press release this quarter concurrent with the initial publication of a new statistical supplement on the kmgamerica.com website. The statistical supplement can be accessed on the website via the "Investor Relations Investor relations The process by which the corporation communicates with its investors. " tab, "Financial Reports" tab, and found under the "Quarterly & Other Reports" section. This change shortens and simplifies the press release while focusing attention on the overall earnings strength of and trends in Kanawha's legacy business, while segregating the revenue and earnings performance of the new large case activity. Much of the financial statement and explanatory detail previously included in the press release will now be found in the new statistical supplement. A derivation of "normalized" earnings is provided in the statistical supplement for the current and prior quarters to identify and remove unusual or temporary items and to help analysts and investors focus on recurring earnings trends. While this reporting basis requires management's subjective judgment, the details are identified and described so the investors and analysts can form their own opinions. WEB CAST The Company will host an investor and analyst web cast today, Monday, November 6, 2006, at 10:00 a.m. EST. The web cast and replay will be available via the following links: www.kmgamerica.com, analyst/investor tab - for all investors; www.streetevents.com - for institutional investors Institutional Investor A non-bank person or organization that trades securities in large enough share quantities or dollar amounts that they qualify for preferential treatment and lower commissions. ; www.fulldisclosure.com - for retail investors Retail Investor Individual investors who buy and sell securities for their personal account, and not for another company or organization. Notes: Retail investors buy in much smaller quantities than larger institutional investors. . The replay will be available starting approximately 2 hours after the original web cast. The replay will be available through Monday, November 20, 2006. ABOUT KMG AMERICA CORPORATION KMG America is a holding company that was formed to acquire the Southeastern regional insurance company, Kanawha Insurance Company, and to operate and grow Kanawha's insurance and other related businesses nationwide. KMG offers a broad mix of individual and group insurance products and stop-loss coverage along with third-party administration services to employers and to working Americans. For more information visit: www.kmgamerica.com. NOTES ON FINANCIAL PRESENTATION Non-GAAP Financial Measures: * Operating Income - To supplement the financial statements presented on a GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). basis, the Company reported operating income, which is a non-GAAP measure. Operating income is defined as net income excluding realized investment gains/losses (except for realized investment gains/losses that are directly offset by executive deferred compensation expense), net of income taxes. Management believes this non-GAAP measure provides investors, potential investors, securities analysts and others with useful additional information to evaluate the performance of the business, because it excludes items that management believes are not indicative of the operating results of the business. In addition, this non-GAAP measure is used by management to evaluate the operating performance of the Company. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income determined in accordance with GAAP. A reconciliation of the non-GAAP financial measures contained in this release to the most comparable GAAP measures appears in the attached tables. Presentation of Earnings Results: During the first two years of operations, the Company has separated the financial performance of KMG America into two primary components: "Kanawha legacy activity" and "new large case activity." This is done to highlight the strength of, and trends in, the Kanawha business activity that existed prior to the acquisition (Kanawha legacy activity), and segregate seg·re·gate v. seg·re·gat·ed, seg·re·gat·ing, seg·re·gates v.tr. 1. To separate or isolate from others or from a main body or group. See Synonyms at isolate. 2. these results from the financial performance related to transforming KMG America into a new public company with a new national marketing focus (new large case activity). The financial results in the "new large case activity" includes all public company costs, the cost of the new management team, and all incremental Additional or increased growth, bulk, quantity, number, or value; enlarged. Incremental cost is additional or increased cost of an item or service apart from its actual cost. sales and underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. costs and product revenues associated with sales generated by the new national sales organization. FORWARD LOOKING INFORMATION This press release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. that are made pursuant to the safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. provisions of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. The accuracy of such statements is subject to a number of risks, uncertainties and assumptions that may cause the Company's actual results to differ materially from those expressed in the forward-looking statements including, but not limited to: implementation of its business strategy; hiring and retaining key employees; predicting and managing claims and other costs; fluctuations in its investment portfolio; financial strength ratings of its insurance subsidiary; government regulations, policies and investigations affecting the insurance industry; competitive insurance products and pricing; reinsurance costs; fluctuations in demand for insurance products; possible recessionary trends in the U.S. economy; and other risks that are detailed from time to time in reports filed by the Company with the Securities and Exchange Commission. The Company assumes no obligation to publicly update or revise any forward-looking statements. [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] |
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